Stock Index Chart Patterns: Jakarta Composite, Singapore Straits Times, Malaysia KLCI – Jul 13, ‘12

Four weeks back, the Asian index charts were trying to escape from the stranglehold of bears. Their struggles appear to be over as bulls have fought back strongly.

Jakarta Composite Index Chart

There are some interesting patterns visible on the Jakarta Composite index chart. After a double-top reversal pattern, the index dropped sharply below all three EMAs. Though the 20 day EMA crossed below the 200 day EMA briefly, it formed a bullish rounding-bottom pattern to cross above the 200 day EMA within a month. The 50 day EMA never crossed below the 200 day EMA, so technically the index never entered a bear market.

The recovery from the Jun ‘12 intra-day low of 3635 has been more gradual than the correction. Though the index climbed above all three EMAs, it touched a lower top followed by a drop to its entwined 20 day and 50 day EMAs and a break below the blue up trend line.

Is the rally over? Not yet. Some times a sideways consolidation can break a trend line without changing the trend. If the index can continue to rise and move past its Jul 4 ‘12 intra-day top of 4091, a bullish pattern of higher bottoms and higher tops will continue. A drop below all three EMAs can change the bullish equation.

Technical indicators are still bullish, after correcting overbought conditions. MACD is positive and above its signal line, but the histogram is falling. ROC is also positive, but has crossed below its 10 day MA and touched a lower top while the index rose higher. The negative divergence is not corroborated by the other three indicators. RSI fell from its overbought zone, but has started moving up. Slow stochastic also fell from its overbought zone, but is above its 50% level.

All three EMAs are rising and the index is trading above them – which indicates a bull market.

Singapore Straits Times Index Chart

Singapore’s Straits Times index corrected swiftly from a triple-top reversal pattern and technically entered a bear market due to the ‘death cross’ of the 50 day EMA below the 200 day EMA. But the recovery has been equally swift.

Note the bullish rounding-bottom patterns formed by the signal line of MACD and the 20 day and 50 day EMAs. The 20 day EMA has crossed above the 200 day EMA and the 50 day EMA should follow soon to technically confirm a return to a bull market.

But there are some dark clouds on the horizon. Volumes have been sliding as the STI has touched higher tops. All four technical indicators are looking overbought. A correction can happen at any time, and will improve the technical health of the chart pattern.

MACD is positive and above its signal line, but the histogram is falling. ROC is also positive, but has crossed below its 10 day MA – indicating slowing upward momentum. RSI and slow stochastic are in their overbought zones, but failed to move higher with the index. Any dip can be used to add to existing positions.

Malaysia KLCI Index Chart

Malaysia’s KLCI index is in a strong bull market, with all three EMAs rising in tandem and the index soaring to new highs. But it formed a ‘reversal day’ pattern (higher high, lower close) on Jul 12 ‘12 – which may lead to a correction. Note that the index and its 20 day EMA have risen far above the 200 day EMA – a condition that heralds a correction.

Technical indicators are bullish, but showing signs of slowing momentum. MACD is positive and above its signal line, but has stopped rising. ROC is positive and above its 10 day MA, but moving sideways. RSI has slipped below its overbought zone. Slow stochastic has formed a rounding-top reversal pattern inside its overbought zone.

Since the KLCI index is in a bull market, the likely dip will be an opportunity to add to existing holdings.

Bottomline? Asian index chart patterns are back in bull territory after recovering from sharp corrections. Any dips can be used to add to existing positions – but with suitable stop-losses.